Financial and Economic Analysis of Ethanol Production from Sugar Molasses: A Case Study of an Integrated Sugar Plant in Ethiopia

Abstract

The Search for and development of alternative sources of energy and its efficient use is increasing with mounting scarcity of petroleum fuels. Long dependence on fossil fuels particularly for the transport sector made life vulnerable to erratic price and supply changes. As a result interest to produce and use Biofuels as an alternative source of energy increased worldwide. Ethiopia has already started production and use of ethanol with the aim of partially offsetting impact of petroleum products import on balance of payment. The initiative as well as enforcement of the national bio fuel sector has to be checked for viability with respect to different requirements including financial and economic performances. This study, as part of the caution, employed cost benefit analysis technique to assess the financial and economic performance of Ethanol production at Finchaa Sugar Factory, a state owned enterprise in Ethiopia. The comparative advantage position in ethanol production from molasses was assessed using Domestic Resource Cost (DRC) method of project appraisal. The Finchaa Sugar Factory Ethanol Plant has an installed capacity of 450 hectolitres of pure alcohol per day. Calculations of Net Present Value and Internal Rate of Return of the project indicated that the production of ethanol from molasses was economically viable. In comparative advantage assessment, estimated DRC figure of 9.70 ETB was less than the shadow exchange rate (ETB 11.58/USD) signifying production cost was less than import value. Real value added through ethanol production over project period was 175 million in Ethiopian Birr. In conclusion study findings demonstrated financial and economical viability of ethanol production from sugar molasses.